Suppose a business is considering the purchase of a $40,000 machine whose operation will result in increased sales of $30,000 per year and increased operating
costs of $10,000; additional profits will be taxed at a rate of 50%. Depreciation is assumed to be taken on a straight‐line basis over four years with no expected salvage value. What will happen to this project’s real rate of return if inflation during the next four years is expected to be 10% compounded annually?